Implementation key to EU’s plan to ‘de-risk’ its China ties

Implementation key to EU’s plan to ‘de-risk’ its China ties

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European policy toward China is increasingly being framed by senior politicians as one of “de-risking” rather than “decoupling.” However, there is little conceptual clarity on what this means, increasing the possibility of EU policy failure.

The debate over de-risking versus decoupling has been turbocharged by recent interventions by key political leaders, such as European Commission President Ursula von der Leyen. In advance of her trip to Beijing this month, she rightly reiterated that “it is neither viable, nor in Europe’s interest, to decouple from China,” in a manner that she has sometimes characterized as being the policy of the US.

Instead, Von der Leyen advocates a more modest form of cautious engagement with Beijing, which she calls de-risking. While this may be a politically viable distinction, it lacks conceptual clarity in a debate that will have enormous implications for Europe in the months to come.

Firstly, there are significant disagreements within the EU member states on these issues, meaning it will not be straightforward to secure policy consensus. De-risking looks less extensive to policymakers in Germany, given the nation’s deep economic ties with China, than it would for key Eastern European nations like Poland and Lithuania (which allowed Taiwan to open a representative office in Vilnius in 2021).

The policy lacks conceptual clarity in a debate that will have enormous implications for Europe in the months to come

Andrew Hammond

Germany is, by far, China’s biggest trading partner in the EU, with the nation’s firms also holding sizable investments in the country. In the first two months of 2023, Germany accounted for 27 percent of all trade between the EU and China.

Meanwhile, Poland tends to be more skeptical about ties with Beijing and has long been one of the EU states most reluctant for Brussels to ratify the currently stalled Comprehensive Agreement on Investment. Poland also reacted strongly to last week’s comments by French President Emmanuel Macron that the EU should reduce its dependence on the US and aim to become a “third pole” in world affairs alongside Washington and Beijing. Both President Andrzej Duda and Prime Minister Mateusz Morawiecki have stressed in recent days that the alliance with the US is essential for European security, cautioning against any idea of Macron-style “strategic autonomy” for the continent.

A second challenge is that Europe is trying to make policy in a fast-changing geopolitical landscape. This dynamic dimension of de-risking makes it a moving (and harder) target to hit.

So, the amount of de-risking Europe collectively feels it will need to take may change significantly over time, depending on China’s posture. If Beijing is perceived to behave “badly” in the coming months and years, there may be a greater consensus in Europe toward more comprehensive de-risking, which may see political rhetoric move toward decoupling. Conversely, if Beijing is perceived to behave “well,” perhaps by playing a key role in bringing Russia to the negotiating table and helping to end the Ukraine war, the policy debate may become more nuanced.

Within this policy vortex, there are some clues to what de-risking could look like based upon what Von der Leyen asserts is the need for “having a clear-eyed picture of what the risks are.” This builds from tools such as the new Critical Raw Materials Act, with which the EU wants to become less reliant on Chinese refining capacities.

The new framework is likely to become clearer when Brussels introduces a new Economic Security Strategy later this year to address what Von der Leyen has called an “unbalanced” economic relationship. This includes reducing dependency and diversifying supply chains away from China, especially in areas where the EU needs to build its green and digital economy.

Key elements of the new framework are likely to include what Von der Leyen asserts is the need for “bolder and faster use” of new economic tools against China. This includes the screening of foreign subsidies and a new policy against economic coercion, which was recently agreed by the European Parliament and member states.

The EU is planning to roll out foreign subsidies regulation, giving it extra muscle to fight distorting subsidies that firms get in third countries. The ambition is to give Brussels greater powers to prevent state-subsidized companies from China — or any other nation — producing in Europe.

Another tool that the EU looks set to develop is what Von der Leyen calls “a targeted instrument on outbound investment.” This is especially for sensitive technologies that can lead to the development of military capabilities that pose national security risks.

Beyond that, the European Commission president has added that the bloc needs to “define its future relationship with China” in sensitive high-tech areas. These include microelectronics, quantum computing, robotics, artificial intelligence and biotech.

A key question now, however, is how much this emerging toolkit can truly deliver on Von der Leyen’s de-risking goal. Seeking to differentiate the EU position from US-style “decoupling” may be clever, but implementation may turn out to be very difficult, both politically and economically.

  • Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.
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